SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q

             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999


Commission file number 0-22085


                                LORAL ORION, INC.
             (Exact name of registrant as specified in its charter)
-------------------------------------------------------------------------------

               Delaware                             52-2008654
       ---------------------                      --------------
    (State or other jurisdiction of               (I.R.S. Employer
     incorporation or organization)              Identification No.)

2440 Research Boulevard, Suite 400,                     20850
      Rockville, Maryland                           ---------------
----------------------------------                     (Zip Code)
(Address of principal executive offices)


                                  301-258-8101
-------------------------------------------------------------------------------
              (Registrant's telephone number including area code)

Indicate  by check  mark  whether  the  registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __

THE REGISTRANT  MEETS THE  CONDITIONS SET FORTH IN GENERAL  INSTRUCTION H (1)(a)
AND (b) OF FORM 10-Q AND IS THEREFORE FILING WITH THE REDUCED  DISCLOSURE FORMAT
PURSUANT TO GENERAL INSTRUCTION H (2) OF FORM 10-Q.


                                       1


<PAGE>


PART I.  FINANCIAL INFORMATION

ITEM I.  FINANCIAL STATEMENTS

                                LORAL ORION, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                   JUNE 30,           DECEMBER 31,
                                                                                    1999                 1998
                                                                                   --------           -------------
                                                                                  (Unaudited)               Note
<S>                                                                              <C>                  <C>

                         ASSETS
Current assets:
         Cash and cash equivalents                                               $  16,015                $  35,861
         Restricted assets                                                          49,428                   50,180
         Accounts receivable (less allowance for doubtful accounts of
               $1,849  and $1,019 at June 30, 1999 and December 31, 1998,
               respectively)                                                        12,341                   15,292
         Prepaid expenses and other current assets                                   2,841                    4,299
         Insurance proceeds receivable                                             265,606                       --
                                                                                ----------                ---------
Total current assets                                                               346,231                  105,632
Restricted and segregated assets                                                        --                   22,675
Property and equipment at cost:
         Land                                                                           74                       74
         Satellite and related equipment                                           263,188                  263,188
         Telecommunications equipment                                               37,478                   35,630
         Furniture and computer equipment                                            9,080                    8,693
                                                                                ----------               ----------
                                                                                   309,820                  307,585
Less accumulated depreciation                                                      (59,022)                 (38,706)
Satellite construction in progress, including capitalized
         interest of $12,518 and $20,198 at June 30, 1999
         and December 31, 1998, respectively                                       214,732                  331,861
                                                                                ----------               ----------
Net property and equipment                                                         465,530                  600,740
Due from Loral                                                                          --                   3,619
Costs in excess of net assets acquired associated
         with the Loral Merger, net                                                601,004                  608,015
Deferred income taxes                                                               52,062                  53,915
Other assets, net                                                                   23,804                   22,908
                                                                                ----------               ----------
TOTAL ASSETS                                                                    $1,488,631              $ 1,417,504
                                                                                ==========               ==========
</TABLE>
-----------
Note:  The December 31, 1998 balance sheet has been derived from the
       audited consolidated financial statements at that date.


           See notes to condensed consolidated financial statements.



                                       2
<PAGE>


                                LORAL ORION, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                  (IN THOUSANDS, EXCEPT SHARE AND PAR AMOUNTS)
                                   (CONTINUED)



<TABLE>
<CAPTION>
                                                                                 JUNE 30,           DECEMBER 31,
                                                                                   1999                 1998
                                                                                 ---------           -----------
                                                                                (Unaudited)              Note

<S>                                                                             <C>                      <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
         Current portion of long-term debt                                       $   2,032             $   1,826
         Accounts payable                                                              796                 2,035
         Accrued and other current liabilities                                      92,958                16,162
         Customer deposits                                                           4,587                 7,897
         Deferred revenue                                                            2,484                35,841
         Interest payable                                                           22,842                22,842
                                                                                ----------          ------------
Total current liabilities                                                          125,699                86,603

 Long-term debt                                                                    946,999               931,669
Other long-term liabilities                                                            150                   141
Due to Loral                                                                        56,036                    --

Commitments and contingencies:
Stockholders' equity:
         Common stock, $.01 par value, 1,000 shares authorized; 100 shares
         outstanding at June 30, 1999 and December 31, 1998                             --                    --
         Capital in excess of par value                                            494,824               481,791
         Unearned compensation                                                      (2,589)               (3,347)
         Accumulated other comprehensive income (loss)                                (769)                  616
         Accumulated deficit                                                      (131,719)              (79,969)
                                                                                ----------          ------------
Total stockholders' equity                                                         359,747               399,091
                                                                                ----------          ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                      $1,488,631            $1,417,504
                                                                                ==========          ============

</TABLE>

Note:  The December 31, 1998 balance sheet has been derived from
       the audited consolidated financial statements at that date.


           See notes to condensed consolidated financial statements.




                                       3
<PAGE>



                               LORAL ORION, INC.
    (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (IN THOUSANDS)
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                                THREE MONTHS
                                                                                                     ENDED
                                             THREE MONTHS ENDED JUNE 30,      SIX MONTHS         MARCH 31, 1998
                                             -----------------------------        ENDED            PREDECESSOR
                                               1999            1998           JUNE 30, 1999          COMPANY
                                             -------          ------         ---------------       --------------
<S>                                          <C>             <C>                <C>                <C>
Service revenue                             $ 24,072        $ 20,243          $  46,610           $ 18,790
Operating expenses:
         Direct                                7,566           7,012             14,197              6,406
         Sales and marketing                   6,315           6,800             12,217              5,790
         Engineering and technical services    2,184           1,549              4,381              1,898
         General and administrative            3,573           3,957              7,311              3,707
         Depreciation and amortization        16,362          16,116             33,903             12,483
         Merger costs                             --             105                 --             12,145
                                             --------       --------            -------           --------
                  Total operating expenses    36,000          35,539             72,009             42,429
                                             --------       --------            -------           --------
Loss from operations                         (11,928)        (15,296)           (25,399)           (23,639)
         Interest  income                        897           5,147              2,071              5,425
         Interest expense                    (17,523)        (17,752)           (31,419)           (21,190)
         Other income (expense)                  234             (99)               358               (287)
                                             --------       --------            -------           --------
Loss before income taxes                     (28,320)        (28,000)           (54,389)           (39,691)
Income tax benefit                               805           8,245              2,639                 --
                                             --------       --------            -------           --------
Net loss                                     (27,515)        (19,755)           (51,750)           (39,691)
Preferred stock dividend, net of for
     feitures                                     --              --                 --              1,387
                                            --------        --------            -------           --------

Net loss attributable to common
    stockholders                           $ (27,515)      $ (19,755)        $  (51,750)         $ (38,304)
                                           =========       =========         ==========          =========

</TABLE>


           See notes to condensed consolidated financial statements.




                                       4
<PAGE>


                               LORAL ORION, INC.
    (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                  THREE MONTHS ENDED
                                                                             ------------------------------
                                                          SIX MONTHS                        MARCH 31, 1998
                                                          ENDED                                 PREDECESSOR
                                                          JUNE 30, 1999      JUNE 30, 1998      COMPANY
                                                          -------------      -------------  ---------------
<S>                                                       <C>              <C>                 <C>
Operating Activities
Net loss                                                  $ (51,750)       $   (19,755)        $  (39,691)
Adjustments to reconcile  net loss to net cash
         provided by (used in) operating activities:
         Deferred income tax provision                        1,853                725                 --
         Depreciation and amortization                       33,903             16,116             12,483
         Amortization of deferred financing costs                --                653                609
         Provision for bad debts                              1,353                425                150
         Non-cash interest expense                           16,483              5,467             10,070
         Other                                                  795                264              1,644
Changes in operating assets and liabilities:
         Accounts receivable                                 (2,342)              (339)            (1,408)
         Prepaid expenses and other current assets            1,458             (2,471)               693
         Other assets                                        (2,942)               (65)               201
         Accounts payable, accrued liabilities and other
                  current liabilities                        44,188              2,755             (2,186)
         Interest payable                                        --             12,405            (12,510)
         Customer deposits                                      800                637                 23
         Deferred revenue                                       (73)              (169)               297
                                                           --------          ---------           --------
Net cash provided by (used in) operating activities          43,726             16,648            (29,625)
Investing Activities
Increase in restricted and segregated assets                 (1,491)            (4,107)            (4,629)
Uses of and transfers from restricted and
         segregated assets                                   24,919            195,360             35,938
Satellite construction costs                               (152,377)          (200,141)           (14,575)
Capital expenditures                                         (2,857)            (6,114)            (3,805)
                                                           --------          ---------           --------
Net cash provided by (used in) investing activities        (131,806)           (15,002)            12,929
Financing Activities
Equity contributed from Loral                                13,033                 --                 --
Due to Loral                                                 59,655             (8,558)                --
Proceeds from issuance of common stock, net of
         issuance costs                                          --                 --              2,117
Repayment of senior notes and notes payable                    (590)              (265)              (254)
Payment of satellite incentive obligations                     (120)            (3,670)              (324)
Other                                                        (3,744)             1,128             (1,051)
                                                           --------          ---------           --------
Net cash provided by (used in) financing activities          68,234            (11,365)               488

Net decrease in cash and cash equivalents                   (19,846)            (9,719)           (16,208)
Cash and cash equivalents at beginning of period             35,861             53,801             70,009
                                                           --------          ---------           --------
Cash and cash equivalents at end of period                $  16,015        $    44,082        $    53,801
                                                           ========          =========           ========
</TABLE>


           See notes to condensed consolidated financial statements.


                                       5

<PAGE>



                               LORAL ORION, INC.
    (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                  (UNAUDITED)





         Supplemental Disclosure of Cash Flow Information

<TABLE>
<CAPTION>
                                                                                 THREE MONTHS ENDED
                                                                         ------------------------------------
                                                      SIX MONTHS         `                   MARCH 31, 1998
                                                      ENDED                                  PREDECESSOR
                                                      JUNE 30, 1999      JUNE 30, 1998       COMPANY
                                                      -------------      -------------       ----------------
<S>                                                    <C>                <C>                <C>
         Insurance proceeds receivable for Orion 3        $ 265,606           $     --           $     --
                                                          =========           ========           ========
         Preferred stock dividend, net of forfeitures            --                 --             (1,387)
                                                          =========           ========           ========
         Conversion of redeemable preferred stock
           to common stock                                       --                 --             69,888
                                                          =========           ========           ========
         Conversion of Company common stock and
           stock options to Loral common stock as the
           result of the Loral Merger                            --                 --            469,000
                                                          =========           ========           ========
         Conversion of subordinated debentures,
           accrued interest, and deferred financing
           costs to common stock                                 --                 --             50,000
                                                          =========           ========           ========
         Issuance of common stock for preferred
           stock dividend                                        --                 --              5,458
                                                          =========           ========           ========
         Issuance of common stock and warrants                   --                 --              4,757
                                                          =========           ========           ========
         Interest paid                                    $  26,038           $    197           $ 25,237
                                                          =========           ========           ========
</TABLE>

           See notes to condensed consolidated financial statements.

                                       6

<PAGE>

                               LORAL ORION, INC.
    (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE A.  BASIS OF PRESENTATION


ORGANIZATION AND BUSINESS

Loral Orion, Inc. (the "Company" or "Loral Orion"), is a holding company with no
assets or operations other than its investments in its subsidiaries. Through the
operations of its subsidiaries,  the Company's  principal  business is providing
satellite-based  communications services for private communications networks and
video  distribution and other satellite  transmission  services.  In 1998, Loral
Orion  organized its business into two distinct  operating  segments as follows:



   Fixed  Satellite  Services:   Leasing  transponder   capacity  and  providing
   value-added  services  to  customers  for a  wide  variety  of  applications,
   including the distribution of broadcast programming, news gathering, business
   television,  distance learning and  direct-to-home  ("DTH")  services.  As of
   January 1, 1999, the Company's  fixed satellite  services  ("FSS") assets are
   managed  by  Loral  Skynet,   a  division  of  Loral  SpaceCom   Corporation;

   Data Services:  Providing  managed  communications  networks and Internet and
   intranet services, using transponder capacity on the Loral Skynet Telstar and
   Loral Orion fleets and third party satellites.



GENERAL

The accompanying unaudited condensed consolidated financial statements have been
prepared by the Company  pursuant to the rules of the  Securities  and  Exchange
Commission  ("SEC") and, in the opinion of the Company,  include all adjustments
(consisting of normal recurring  accruals)  necessary for a fair presentation of
the  results  of  operations,   financial  position  and  cash  flows.   Certain
information and footnote  disclosures  normally included in financial statements
prepared in accordance with generally accepted  accounting  principles have been
condensed  or omitted  pursuant  to SEC rules.  The  Company  believes  that the
disclosures  made are  adequate  to keep the  information  presented  from being
misleading.  The results of  operations  for the three and six months ended June
30, 1999 are not  necessarily  indicative  of the results to be expected for the
full  year.  It  is  suggested  that  these  financial  statements  be  read  in
conjunction with the Company's latest Annual Report on Form 10-K.

ACQUISITION OF THE COMPANY BY LORAL

On March 20, 1998,  Orion Network  Systems,  Inc.  ("Orion" or the  "Predecessor
Company") was acquired by Loral Space & Communications Ltd.  ("Loral"),  through
the merger (the "Merger") of a wholly owned  subsidiary of Loral,  with and into
Orion.  Loral  consummated  the  acquisition by issuing 18 million shares of its
common stock and assuming existing Orion vested options and warrants to purchase
1.4 million  shares of Loral common  stock  representing  an aggregate  purchase
price of $472.5 million.  Orion was the surviving  corporation of the Merger and
thereby became a subsidiary of Loral. At the effective date of the Merger, Loral
contributed its investment in Orion to Loral Space & Communications Corporation,
a wholly owned  subsidiary of Loral,  and Orion changed its name to "Loral Orion
Network  Systems,  Inc." The name has since been changed to "Loral Orion,  Inc."

The consolidated financial statements for the three months ended March 31, 1998,
reflect the results of operations of the Predecessor  Company.  The consolidated
financial  statements  subsequent  to March 31,  1998,  reflect  the  results of
operations of Loral Orion, Inc.  Hereafter,  references to the "Company" include
both Loral Orion, Inc. and its predecessor, Orion Network Systems, Inc.

The Merger was  accounted for as of March 31, 1998,  using the purchase  method.
Accordingly,  the  consolidated  balance sheet at June 30, 1999 and December 31,
1998 reflects the push-down of the purchase price  allocations to the assets and
liabilities.  The purchase price represented $447.7 million in excess of Orion's
net book value, which

                                       7

<PAGE>

                                LORAL ORION, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


was  primarily  allocated  to costs in excess of net assets  acquired  of $619.7
million,  and a fair value adjustment of $153.4 million to increase the carrying
value of Orion's  senior notes and senior  discount  notes.  In addition,  Loral
agreed to assume Orion's  unvested  employee stock options,  which resulted in a
new measurement date and an unearned  compensation charge of $4.3 million, to be
amortized over the remaining vesting period of the options.

Had the  acquisition  of the Company  occurred on January 1, 1998, the unaudited
pro forma sales,  operating  loss and net loss for the six months ended June 30,
1998  would  have  been  $39.0  million,   $31.1  million,  and  $48.5  million,
respectively.  These  results,  which are based on various  assumptions  are not
necessarily  indicative  of what would have  occurred had the  acquisition  been
consummated on January 1, 1998.

COMPREHENSIVE INCOME

The  Company  follows  Statement  of  Financial  Accounting  Standards  No. 130,
Reporting  Comprehensive Income ("SFAS 130") for the reporting and disclosure of
comprehensive  income and its components.  SFAS 130 requires unrealized gains or
losses on the Company's foreign currency translation  adjustments to be included
in other comprehensive income (loss). Total comprehensive loss is as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                   Three months ended
                                                          -----------------------------------
                                        Six months                             March 31, 1998
                                          ended                                  Predecessor
                                       June 30, 1999      June 30, 1998           Company
                                       -------------      -------------        --------------
<S>                                  <C>                <C>                  <C>
Net loss                               $     51,750       $      19,755        $       39,691
Cumulative translation adjustment             1,385                 472                    --
                                       -------------      -------------        --------------
Total comprehensive loss               $     53,135       $      20,227        $       39,691
                                       =============      =============        ==============
</TABLE>

EARNINGS PER SHARE

Earnings per share is not presented since it is not considered meaningful due to
the Merger with Loral and recapitalization of the Company.

NOTE B.  LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                         June 30,              December 31,
                                                                           1999                    1998
                                                                         --------              ------------
<S>                                                                    <C>                        <C>
Senior notes (net of premium of $61.7  million and $64.6 million
         at June 30, 1999 and December 31, 1998, respectively)         $  504,716                 $ 507,573
Senior discount notes (maturity value of $484 million)                    428,152                   408,812
Notes payable - TT&C Facility                                               4,361                     4,953
Satellite incentive obligations                                            11,256                    11,376
Other                                                                         546                       781
                                                                       ----------                 ---------
         Total long-term debt                                             949,031                   933,495
         Less: current portion                                             (2,032)                   (1,826)
                                                                       ----------                 ---------
         Long-term debt less current portion                           $  946,999                 $ 931,669
                                                                       ==========                 =========
</TABLE>


                                       8

<PAGE>

                                LORAL ORION, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In connection  with the Merger,  Loral did not assume the Company's  outstanding
debt. Such debt remains  outstanding and is non-recourse to Loral.  The carrying
value of the Company's  Senior Notes and Senior  Discount Notes was increased to
reflect a fair value adjustment of $153.4 million in connection with the Merger,
based on quoted market prices at March 31, 1998.

NOTE C.  INCOME TAXES

The Company is included in the  consolidated  U.S.  Federal income tax return of
Loral Space & Communications  Corporation.  Pursuant to a tax sharing  agreement
for 1999 with Loral Space & Communications Corporation,  the Company is entitled
to reimbursement  for the use of its tax losses when such losses are utilized by
the consolidated group. The Company recorded a receivable under this tax sharing
agreement  of  approximately  $2.3  million and $4.5  million and a deferred tax
provision  of $1.4 million and $1.9  million,  resulting in a net tax benefit of
$0.8  million and $2.6 million for the three and six months ended June 30, 1999,
respectively.  The  Company's  effective  tax benefit rate (5%) differs from the
federal statutory rate (35%), due to the valuation allowance established for the
carryforward  of the  current  year  tax  loss  (25.1%)  and the  non-deductible
amortization of costs in excess of net asset acquired  (4.9%).  The deferred tax
asset of $52.1  million as of June 30, 1999 on the  accompanying  balance  sheet
arises from the tax effect of the  temporary  differences  between the  carrying
amount of the Senior Notes and the Senior  Discount  Notes payable for financial
and income tax purposes.


NOTE D.  SEGMENTS

The  Company's  two  operating  segments are fixed  satellite  services and data
services (see Note A).

In  evaluating  financial  performance,  management  uses  revenues and earnings
before  interest,  taxes and  depreciation  and  amortization  ("EBITDA") as the
measure of a segment's profit or loss.  Beginning January 1, 1999, the Company's
fixed  satellite  services  ("FSS")  assets are  managed by Loral  Skynet.  As a
result,  in 1999 the FSS segment  began leasing  satellite  capacity to the data
services segment for its use of Orion 1. See Note E.


                                       9

<PAGE>

                                LORAL ORION, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Summarized financial information  concerning the Company's operating segments is
as follows:

                        THREE MONTHS ENDED JUNE 30, 1999
                                   (unaudited)
                                  (in millions)

<TABLE>
<CAPTION>
                                                 FIXED                               TOTAL
                                               SATELLITE           DATA            REPORTABLE       INTERSEGMENT
                                               SERVICES          SERVICES           SEGMENTS        ELIMINATIONS      CONSOLIDATED
                                           ----------------- ----------------- ------------------ ----------------- ----------------
<S>                                       <C>               <C>               <C>               <C>               <C>
Revenue from external customers ......      $          7.5    $         16.6    $          24.1   $            --   $         24.1
Intersegment revenue .................                 1.7                --                1.7              (1.7)              --
                                           ----------------- ----------------- ------------------ ----------------- ----------------
Gross revenue ........................      $          9.2    $         16.6    $          25.8   $          (1.7)  $         24.1
                                           ================= ================= ================== ================= ================
EBITDA 1 .............................      $          4.9    $         (0.5)   $           4.4   $            --   $          4.4
Depreciation and amortization ........                12.7               3.7               16.4                --             16.4
                                           ----------------- ----------------- ------------------ ----------------- ----------------
Loss from operations .................      $         (7.7)   $         (4.2)   $         (11.9)  $            --   $        (11.9)
                                           ================= ================= ================== ================= ================
Total assets  ........................      $      1,415.9    $         68.7    $       1,488.6   $            --   $      1,488.6
                                           ================= ================= ================== ================= ================
</TABLE>



                        THREE MONTHS ENDED JUNE 30, 1998
                                   (unaudited)
                                  (in millions)

<TABLE>
<CAPTION>
                                                 FIXED                                       TOTAL
                                               SATELLITE               DATA               REPORTABLE
                                               SERVICES              SERVICES              SEGMENTS            CONSOLIDATED
                                           -----------------     -----------------     -----------------    ------------------
<S>                                        <C>                   <C>                   <C>                   <C>
Revenue from external customers ......      $         8.2         $         12.0        $         20.2        $       20.2
                                           =================     =================     =================    ==================
EBITDA 1 .............................      $         6.7         $        (5.8)        $          0.9        $        0.9
Depreciation and amortization ........               12.7                    3.4                  16.1                16.1
Merger costs .........................                 --                     --                    --                 0.1
                                           -----------------     -----------------     -----------------    ------------------
Loss from operations..................      $        (6.0)        $        (9.2)        $       (15.2)        $      (15.3)
                                           =================     =================     =================    ==================
Total assets  ........................      $     1,330.1         $         97.6        $      1,427.7        $    1,427.7
                                           =================     =================     =================    ==================
</TABLE>



   1 EBITDA (which is equivalent to operating income (loss) before  depreciation
   and  amortization  and  merger  costs) is  provided  because  it is a measure
   commonly  used in the  communications  industry to analyze  companies  on the
   basis of operating  performance,  leverage and  liquidity and is presented to
   enhance the understanding of Loral Orion's operating results. However, EBITDA
   should not be construed as an  alternative to net income as an indicator of a
   company's operating performance, or cash flow from operations as a measure of
   a company's liquidity.  EBITDA may be calculated  differently and, therefore,
   may  not be  comparable  to  similarly  titled  measures  reported  by  other
   companies.


                                       10

<PAGE>

                                LORAL ORION, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                         SIX MONTHS ENDED JUNE 30, 1999
                                   (UNAUDITED)
                                  (IN MILLIONS)

<TABLE>
<CAPTION>
                                                 FIXED                               TOTAL
                                               SATELLITE           DATA            REPORTABLE       INTERSEGMENT
                                               SERVICES          SERVICES           SEGMENTS        ELIMINATIONS      CONSOLIDATED
                                           ----------------- ----------------- ------------------ ----------------- ----------------
<S>                                      <C>               <C>               <C>                 <C>               <C>
Revenue from external customers ......      $          14.8   $          31.8   $         46.6      $          --     $        46.6
Intersegment revenue .................                  3.5                --              3.5               (3.5)                --
                                           ----------------- ----------------- ------------------ ----------------- ----------------
Gross revenue ........................      $          18.3   $          31.8   $         50.1      $        (3.5)    $        46.6
                                           ================= ================= ================== ================= ================
EBITDA  ..............................      $          11.3   $          (2.8)  $          8.5      $          --     $         8.5
Depreciation and amortization ........                 26.9               7.0             33.9                 --              33.9
                                           ----------------- ----------------- ------------------ ----------------- ----------------
Loss from operations .................      $         (15.6)  $          (9.8)  $        (25.4)     $          --     $       (25.4)
                                           ================= ================= ================== ================= ================
Total assets  ........................      $       1,415.9   $          68.7   $      1,488.6      $          --     $     1,488.6
                                           ================= ================= ================== ================= ================
</TABLE>


                        THREE MONTHS ENDED MARCH 31, 1998
                               PREDECESSOR COMPANY
                                   (unaudited)
                                  (in millions)


<TABLE>
<CAPTION>
                                                 FIXED                                       TOTAL
                                               SATELLITE               DATA               REPORTABLE
                                               SERVICES              SERVICES              SEGMENTS            CONSOLIDATED
                                           -----------------     -----------------     -----------------    ------------------
<S>                                       <C>                   <C>                   <C>                   <C>
Revenue from external customers ......      $         7.9         $         10.9        $         18.8        $       18.8
                                           =================     =================     =================    ==================
EBITDA ...............................      $         6.7         $        (5.7)        $          1.0        $        1.0
Depreciation and amortization ........                9.6                    2.9                  12.5                12.5
Merger costs .........................                 --                     --                    --                12.1
                                           -----------------     -----------------     -----------------    ------------------
Loss from operations..................      $        (2.9)        $        (8.6)        $       (11.5)        $      (23.6)
                                           =================     =================     =================    ==================
Total assets  ........................      $     1,333.0         $         98.2        $      1,431.2        $    1,431.2
                                           =================     =================     =================    ==================
</TABLE>


                                       11

<PAGE>

                                LORAL ORION, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE E. COMMITMENTS AND CONTINGENCIES

Orion 1 -- In November  1995, a portion of the Orion 1 satellite  experienced an
anomaly that resulted in a temporary service interruption, lasting approximately
two hours, in the dedicated  capacity  serving the European portion of Orion 1's
services.  Full service to all affected  customers was restored using  redundant
equipment  on the  satellite.  The Company  believes,  based on the data and the
Telesat Report,  that,  because the redundant  component is functioning fully in
accordance with  specifications and the performance record of similar components
is strong, the anomalous behavior is unlikely to affect the expected performance
of the satellite over its useful life. Furthermore,  there has been no effect on
the Company's  ability to provide services to customers.  However,  in the event
that  the  currently  operating  component  fails,  Orion 1 would  experience  a
significant loss of usable capacity.  In such event,  while the Company would be
entitled to insurance proceeds of approximately $53 million as of June 1999, and
could lease replacement capacity and function as a reseller with respect to such
capacity,  the loss of  capacity  would  have a material  adverse  effect on the
Company.

Orion 2 -- During  the  second  quarter  of 1998,  the  Company  entered  into a
satellite procurement contract with Space Systems/Loral, Inc. ("SS/L"), a wholly
owned  subsidiary  of  Loral,  for the  construction  and  launch of the Orion 2
satellite for the operation in the Atlantic Ocean region at 12 degrees W.L. (the
"SS/L Contract").  The SS/L Contract provides for delivery in-orbit of the Orion
2 satellite  aboard an Ariane 44L launch  vehicle in the fourth quarter of 1999.
The SS/L satellite  design provides for 38 Ku-band  transponder with a footprint
covering  the  Eastern  United  States,   Southeastern   Canada,   Europe,   the
Commonwealth of Independent  States, the Middle East, North and South Africa and
South  America.  Loral Orion's cash will be used to fund the SS/L Contract up to
an amount that, will not exceed $202 million. Any requirements to SS/L in excess
of $202 million  (estimated to be approximately $60 million) for Orion 2 will be
funded with  additional  equity  contributed by Loral.  During June 1999,  Loral
funded $13 million of equity for Orion 2.

Orion 3 -- In January  1997,  the Company  entered into a satellite  procurement
contract with Hughes Space and  Communications  Corporation for the construction
and launch of Orion 3, for which  construction  commenced in December  1996. The
contract  provided  for  delivery in orbit of Orion 3, for a firm fixed price of
$203 million,  excluding launch insurance and $8 million of incentive  payments.
The  orbital  slot for Orion 3 covers  broad  areas of the Asia  Pacific  region
including China, Japan, Korea, Southeast Asia, Australia,  New Zealand,  Eastern
Russia and Hawaii.

On May 4, 1999, the Company's  Orion 3 broadcast  video and data  communications
satellite  was placed  into a  lower-than-expected  orbit  after its launch on a
Boeing Delta III rocket from Cape Canaveral Air Station,  Florida.  According to
Boeing,  the Delta III's second stage  apparently  failed to complete its second
stage burn,  and, as a result,  the  satellite  achieved an orbit well below the
planned  final  altitude.  Data from the  satellite is still being  received and
analyzed to determine the cause of the failure. The satellite cannot be used for
the company's intended purpose as a result.

The  satellite  and launch were fully  insured for  approximately  $266 million.
DACOM  Corporation,  a Korean  communications  company which had purchased eight
transponders  on Orion 3 for a total of $89  million,  had made  prepayments  of
approximately  $34 million to the Company.  Under Loral Orion's  agreement  with
DACOM,  the amount  prepaid  was  refunded  in July 1999 since Orion 3 failed to
commence commercial operations by June 30, 1999. In addition, Loral Orion's debt
covenants  require that the insurance  proceeds be used to acquire a replacement
satellite within 15 months of receipt of such proceeds, or to pay down debt (see
Note B). The Company is  currently  evaluating  its options  with regard to this
matter.


                                       12

<PAGE>


                                LORAL ORION, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Agreements  with  Loral  Skynet -- During  the  fourth  quarter  of 1998,  Loral
completed its  integration  plan for Loral Orion and  transferred  management of
Loral  Orion's  satellite  capacity  leasing and  satellite  operations to Loral
Skynet,  effective  January 1, 1999. Loral Orion and Loral Skynet, a division of
Loral SpaceCom Corporation, which in turn is a wholly-owned subsidiary of Loral,
have entered into agreements (the "Loral Skynet  Agreements")  effective January
1, 1999,  whereby  Loral  Skynet  provides to Orion (i)  marketing  and sales of
satellite  capacity  services on the Orion satellite network and related billing
and  administration  of  customer  contracts  for  those  services  (the  "Sales
Services")  and (ii)  telemetry,  tracking  and control  services  for the Orion
satellite  network  (the  "Technical  Services",  and  together  with the  Sales
Services,  the "Services").  Orion is charged Loral Skynet's costs for providing
these services plus a 5 percent administrative fee.

Litigation -- Loral Orion is party to various  litigation  arising in the normal
course of its operations.  In the opinion of management,  the ultimate liability
for these  matters,  if any,  will not have a material  adverse  effect on Loral
Orion's financial position or results of operations.

NOTE F.  RECLASSIFICATIONS

Certain prior period  amounts have been  reclassified  to conform to the current
period presentation.


                                       13

<PAGE>

                                LORAL ORION, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)

ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

Except for the historical information contained herein, the matters discussed in
this Management's  Discussion and Analysis of Financial Condition and Results of
Operations,  and  elsewhere in this Form 10-Q,  are  forward-looking  statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the  Securities  Exchange Act of 1934,  as amended.  In addition,
from time to time,  Loral Orion or their  representatives  have made or may make
forward-looking   statements,   orally  or  in  writing.   Such  forward-looking
statements may be included in, but are not limited to,  various  filings made by
Loral Orion with the Securities and Exchange Commission,  press releases or oral
statements  made by or with the approval of an authorized  executive  officer of
Loral Orion.  Actual  results could differ  materially  from those  projected or
suggested  in any  forward-looking  statements  as a result of a wide variety of
factors or conditions.  See the section of Loral Orion,  Inc's. Annual Report on
Form 10-K for the fiscal year ended December 31, 1998,  entitled  "Certain Facts
That May Effect Future Results".

GENERAL

Loral Orion,  Inc. (the  "Company" or "Loral  Orion"),  formerly  known as Loral
Orion Network  Systems,  Inc., is a holding company with no assets or operations
other than its  investments in its  subsidiaries.  Through the operations of its
subsidiaries,  the  Company's  principal  business is providing  satellite-based
communications   services   for  private   communications   networks  and  video
distribution  and other satellite  transmission  services.  In 1998, Loral Orion
organized  its  business  into  two  distinct  operating  segments  as  follows:

   Fixed  Satellite  Services:   Leasing  transponder   capacity  and  providing
   value-added  services  to  customers  for a  wide  variety  of  applications,
   including the distribution of broadcast programming, news gathering, business
   television,  distance learning and  direct-to-home  ("DTH")  services.  As of
   January 1, 1999, the Company's  fixed satellite  services  ("FSS") assets are
   managed  by  Loral  Skynet,   a  division  of  Loral  SpaceCom   Corporation;

   Data Services:  Providing  managed  communications  networks and Internet and
   intranet services, using transponder capacity on the Loral Skynet Telstar and
   Loral Orion fleets and third party satellites.

No  restrictions  exist  on the  ability  of the  subsidiaries  of  Loral  Orion
("Subsidiary  Guarantors")  other  than  inconsequential  subsidiaries,  to  pay
dividends  or make  other  distributions  to the  Company,  except to the extent
provided by law generally  (e.g.,  adequate capital to pay dividends under state
corporate laws).

ORION 2

The  Company   entered  into  a  satellite   procurement   contract  with  Space
Systems/Loral  ("SS/L"), a wholly owned subsidiary of Loral SpaceCom Corporation
for the  construction  and launch of the Orion 2 satellite  for operation in the
Atlantic  Ocean  region at  12(degree)  W.L.  (the  "SS/L  Contract").  The SS/L
Contract  provides  for  delivery  in-orbit  of the Orion 2 aboard an Ariane 44L
launch vehicle in the fourth quarter of 1999. The SS/L satellite design provides
for 38 Ku-band transponders with a footprint covering the Eastern United States,
Southeastern Canada,  Europe, the Commonwealth of Independent States, the Middle
East,  North and South Africa and South  America.  Any  requirements  to SS/L in
excess  of $202  million  for  Orion 2 will be  funded  with  additional  equity
contributed by  Loral.During  June 1999,  Loral funded $13 million of equity for
Orion 2.

ORION 3

On May 4, 1999, the Company's  Orion 3 broadcast  video and data  communications
satellite  was placed  into a  lower-than-expected  orbit  after its launch on a
Boeing Delta III rocket from Cape Canaveral Air Station,  Florida.  According to
Boeing,  the Delta III's second stage  apparently  failed to complete its second
stage burn,  and, as a result,  the satellite,  manufactured by Hughes Space and
Communications  Corporation,  achieved  an orbit  well below the  planned  final
altitude.  Data from the  satellite  is still  being  received  and  analyzed to
determine the cause of the failure.  As a result,  the satellite  cannot be used
for the Company's intended purpose.

                                       14

<PAGE>

                                LORAL ORION, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS
                                   (CONTINUED)

The  satellite  and launch were fully  insured for  approximately  $266 million.
DACOM  Corporation,  a Korean  communications  company which had purchased eight
transponders  on Orion 3 for a total of $89  million,  had made  prepayments  of
approximately  $34 million to the Company.  Under Loral Orion's  agreement  with
DACOM,  the amount  prepaid  was  refunded  in July 1999 since Orion 3 failed to
commence commercial operations by June 30, 1999. In addition, Loral Orion's debt
covenants  require that the insurance  proceeds be used to acquire a replacement
satellite within 15 months of receipt of such proceeds, or to pay down such debt
(see Note B to the condensed consolidated financial statements).  The Company is
currently  evaluating  its options  with  regard to this  matter.  During  1999,
expected earnings from Orion 3, which will now not be received,  will be offset,
in part,  by  reduced  depreciation  as well as  reduced  interest  expense  and
operating costs.

Satellite  Launch  and  Operation  Risk.  There  can be no  assurance  that  the
Company's satellites will be successfully launched or operate in accordance with
their  design.  While the Company  intends to procure  launch  insurance for its
satellites,  a total or partial loss of a satellite will involve delays and loss
of revenue,  which may impair the Company's  ability to service its indebtedness
and such insurance will not protect the Company against  business  interruption,
loss or delay of  revenues  or similar  losses and may not fully  reimburse  the
Company for its expenditures.

RESULTS OF OPERATIONS

On March 20,  1998,  Orion was  acquired  by Loral Space &  Communications  Ltd.
("Loral"),  through the merger (the  "Merger") of a wholly owned  subsidiary  of
Loral,  Loral  Satellite  Corporation,  with and into Orion.  (See Note A to the
condensed   consolidated   financial   statements.)   In  order  to  provide  an
understanding  of the Company,  the results of  operations  discusses the actual
results  for the three  months  ended June 30, 1999 and June 30,  1998;  and the
actual results of operation for the six months ended June 30, 1999 and pro forma
results of  operation  for the six months  ended  June 30,  1998.  The pro forma
results of  operations  have been  presented to give the effect as of January 1,
1998,  of the Merger with Loral,  and the Exchange,  the Orion  Merger,  and the
Financings (the "Transactions"),  as described in Note 1 in the Company's latest
Annual Report on Form 10-K. The pro forma results of operations does not purport
to present the actual results of operations of the Company had the  Transactions
in fact  occurred  on January  1, 1998 nor is it  indicative  of the  results of
operations that may be achieved in the future.

As a result of these  Transactions,  the pro forma  adjustments  resulted  in an
increase in depreciation and amortization expenses of approximately $4.4 million
for the six months  ended June 30,  1998.  This  increase  primarily  relates to
amortization  expense for cost in excess of net assets acquired  associated with
the Loral  Merger.  The pro forma  results for 1998 also include a $12.1 million
adjustment to eliminate  merger costs.  Pro forma  interest  expense for the six
months ended June 30, 1998 includes an  adjustment  to decrease  expense by $3.2
million.  The  decrease in interest  expense is  primarily  attributable  to the
amortization  of bond  premium  relating to the fair value  adjustments  and the
elimination  of  interest  expense  on the  debentures  as a result of the Loral
Merger.

In  evaluating  financial  performance,  management  uses  revenues and earnings
before interest, taxes, depreciation and amortization ("EBITDA") as a measure of
a segment's  profit or loss.  The  following  discussion  of revenues and EBITDA
reflects the actual  results of Loral Orion's  operating  segments for the three
months  ended  June 30,  1999  and June 30,  1998;  and the  actual  results  of
operations  for the six months ended June 30, 1999 and the pro forma  results of
operation  for the six months ended June 30, 1998.  See Note D to the  condensed
consolidated financial statements for additional information on segment results.


                                       15


<PAGE>



                                LORAL ORION, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
           MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS
                                   (CONTINUED)


OPERATING REVENUES (IN MILLIONS):

<TABLE>
<CAPTION>

                                                                                              Pro forma
                                                                                             three months
                                                                                                ended
                                     Three months ended June 30,          Six months        March 31, 1998
                                    ----------------------------             ended           Predecessor
                                        1999             1998             June 30, 1999        Company
                                    -------------     ----------          -------------     --------------
<S>                                 <C>               <C>                 <C>               <C>


Fixed satellite services..........  $  9.2            $  8.2                $ 18.3             $  7.9
Data services.....................    16.6              12.0                  31.8               10.9
Intersegment elimination..........    (1.7)               --                  (3.5)                --
                                    ------            ------                ------             ------
Operating revenues................  $ 24.1            $ 20.2                $ 46.6             $ 18.8
                                    ======            ======                ======             ======

</TABLE>



EBITDA 1 (IN  MILLIONS):

<TABLE>
<CAPTION>

                                                                                              Pro forma
                                                                                             three months
                                                                                                ended
                                     Three months ended June 30,          Six months        March 31, 1998
                                    ----------------------------             ended           Predecessor
                                        1999             1998             June 30, 1999        Company
                                    -------------     ----------          -------------     --------------
<S>                                 <C>               <C>                 <C>               <C>
Fixed satellite services..........  $  4.9            $  5.1                $ 11.3             $ 5.1
Data services.....................    (0.5)             (4.2)                 (2.8)             (4.1)
                                    ------            ------                ------             -----
EBITDA............................  $  4.4            $  0.9                $  8.5             $ 1.0
                                    ======            ======                ======             =====


</TABLE>




--------
1 Pro forma EBITDA  (which is  equivalent  to  operating  income  (loss)  before
depreciation and amortization) is provided because it is a measure commonly used
in the  communications  industry to analyze  companies on the basis of operating
performance,   leverage   and   liquidity   and  is  presented  to  enhance  the
understanding of Loral Orion's operating results.  However, EBITDA should not be
construed  as an  alternative  to net  income  as an  indicator  of a  company's
operating performance,  or cash flow from operations as a measure of a company's
liquidity.  EBITDA may be  calculated  differently  and,  therefore,  may not be
comparable to similarly titled measures reported by other companies.

                                       16

<PAGE>



                                LORAL ORION, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
           MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS
                                   (CONTINUED)

Revenue and Backlog. Total revenues for the three months ended June 30, 1999 and
1998 were $24.1  million and $20.2  million,  an increase of $3.9  million or 19
percent. This increase is primarily  attributable to the private  communications
network services operations, which included the addition of 86 customer sites in
service  compared to the same period in 1998.  Total revenues for the six months
ended  June 30,  1999 and pro forma six months  ended  June 30,  1998 were $46.6
million and $39.0 million,  an increase of $7.6 million or 19 percent,  which is
attributable   to  the   additional   customer  sites  in  service  for  private
communication  network  services  for the six month  period  ended June 30, 1999
compared to the same period in 1998.

At June 30, 1999, the Company had backlog  (representing  future  revenues under
contract) of  approximately  $265.3  million  (adjusted for the debooking of $89
million for DACOM)  compared to $289.6  million at June 30,  1998.  Revenue from
customer contract backlog is typically earned over two to five years.

Direct  Expenses.  Direct expenses for the three months ended June 30, 1999 were
$7.6 million  compared to $7.0 million for the same period in 1998,  an increase
of $0.6 million or 9 percent.  Direct expenses for the six months ended June 30,
1999 and the pro forma six months  ended June 30,  1998 were $14.2  million  and
$13.4  million,  respectively.  These  increases are primarily  attributable  to
Internet  access,  satellite  transponder  leasing and terrestrial link charges.
These costs support the Worldcast Internet access product  ("Worldcast"),  which
provides international internet connectivity through Orion 1.

Sales and Marketing Expenses. Sales and marketing expenses were $6.3 million for
the three months  ended June 30, 1999,  as compared to $6.8 million for the same
period in June 30,  1998,  a decrease  of $0.5  million or 7 percent.  Sales and
marketing  expenses for the six months ended June 30, 1999 and the pro forma six
months ended June 30, 1998 were $12.2 million and $12.6 million, respectively.

Engineering and Technical Services Expenses.  Engineering and technical services
expenses for the three months ended June 30, 1999 were $2.2 million  compared to
$1.5 million for the same period in 1998. Engineering and technical expenses for
the six months  ended June 30, 1999 and the pro forma six months  ended June 30,
1998 were $4.4  million and $3.4  million,  respectively.  These  increases  are
primarily due to increased costs  associated  with  development of the Worldcast
product.

General and Administrative  Expenses.  General and administrative  expenses were
$3.6 million for the three  months ended June 30, 1999  compared to $4.0 million
for the same period in 1998, a decrease of $0.4  million or 10 percent.  General
and  administrative  expenses for the six months ended June 30, 1999 and the pro
forma  six  months  ended  June 30,  1998 were $7.3  million  and $7.7  million,
respectively.

Depreciation and  Amortization.  Depreciation  and amortization  expense for the
three months ended June 30, 1999 was $16.4 million compared to $16.1 million for
the same period in 1998, an increase of $0.3 million or 2 percent.  Depreciation
and  amortization  expense  for the six months  ended June 30,  1999 and the pro
forma six months  ended  June 30,  1998 were $33.9  million  and $32.9  million,
respectively.

Interest.  Interest  income was $0.9 million for the three months ended June 30,
1999,  compared  to $5.1  million  for the three  months  ended  June 30,  1998.
Interest  income  for the six months  ended June 30,  1999 and the pro forma six
months  ended June 30, 1998 were $2.1 million and $10.6  million,  respectively.
These  decreases  were due to the  reduction  in the balance of  segregated  and
restricted funds, which were used for the construction of satellites and to fund
interest  payments on the  Company's  senior  notes.  Interest  expense,  net of
capitalized interest of $3.8 million and $3.3 million,  respectively,  was $17.5
million for the three months ended June 30, 1999, and


                                       17

<PAGE>



                                LORAL ORION, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
           MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS
                                   (CONTINUED)

$17.8 million for the three months ended June 30, 1998. Interest expense for the
six months  ended June 30, 1999 and the pro forma six months ended June 30, 1998
were $31.4 million and $35.8  million,  respectively.  The decreases in interest
expense  are  due to  additional  capitalized  interest  costs  attributable  to
satellites under construction.

Income Taxes.  The Company is included in the  consolidated  U.S. Federal income
tax  return  of Loral  Space &  Communications  Corporation.  Pursuant  to a tax
sharing  agreement for 1999 with Loral Space & Communications  Corporation,  the
Company is  entitled  to  reimbursement  for the use of its tax losses when such
losses are  utilized by the  consolidated  group.  The  Company  has  recorded a
receivable under this tax sharing  agreement of  approximately  $2.3 million and
$4.5  million and a deferred tax  provision  of $1.4  million and $1.9  million,
resulting  in a net tax benefit of $0.8  million and $2.6  million for the three
and six months  ended June 30,  1999,  respectively.  The  deferred tax asset of
$52.1 million as of June 30, 1999 on the accompanying  balance sheet arises from
the tax effect of the temporary  differences  between the carrying amount of the
Senior Notes and the Senior  Discount Notes payable for financial and income tax
purposes.

Net Loss.  As a result of the above,  the Company  incurred  net losses of $27.5
million  and $19.8  million for the three  months  ended June 30, 1999 and 1998,
respectively.  Net  losses for the six  months  ended June 30,  1999 and the pro
forma six months  ended  June 30,  1998 were $51.8  million  and $48.5  million,
respectively.

RESULTS BY OPERATING SEGMENT

Effective  January 1, 1999,  data services  contracted  with FSS for transponder
capacity, which is reflected as revenues for FSS and costs for data services. In
1998,  costs for the leasing of  transponder  capacity  for data  services  were
allocated from fixed satellite services.

Fixed Satellite Service

FSS revenue for the three months ended June 30, 1999 was $9.2 million (including
$1.7 million of intersegment revenue) versus $8.2 million for three months ended
June 30 1998.  EBITDA for the three months ended June 30, 1999 was $4.9 million,
or 53 percent of revenues, versus $5.1 million (after allocating $1.6 million of
costs to data services),  or 62 percent of revenues,  for the three months ended
June 30,  1998.  FSS  revenue  for the six months  ended June 30, 1999 was $18.3
million  (including $3.5 million of  intersegment  revenue) versus $16.1 million
for the pro forma six  months  ended  June 30,  1998.  EBITDA for the six months
ended June 30, 1999 was $11.3,  or 62 percent of revenues,  versus $10.2 million
(after  allocating  $3.3  million of costs to data  services),  or 63 percent of
revenues, for the pro forma six months ended June 30, 1998.

Data Services

Revenues for the data services  segment for the three months ended June 30, 1999
was approximately  $16.6 million versus $12.0 million for the three months ended
June 30, 1998,  primarily  from Loral  Orion's  corporate  data  networking  and
Internet and  intranet  services  businesses.  EBITDA for the three months ended
June 30, 1999 was a loss of approximately  $0.5 million  (including $1.7 million
of  charges  from FSS for  leasing  capacity  on Orion 1)  versus a loss of $4.2
million (including $1.6 million of costs allocated from FSS for capacity used on
Orion 1) for the three months ended June 30, 1998. Data services revenue for the
six months  ended June 30, 1999 and the pro forma six months ended June 30, 1998
were $31.8 million and $22.9  million,  respectively.  EBITDA for the six months
ended  June 30,  1999 was a loss of $2.8  million  (including  $3.5  million  of
charges from FSS for leasing  capacity on Orion 1) versus a loss of $8.3 million
(including  $3.3 million of costs  allocated from FSS for capacity used on Orion
1) for the pro forma six months ended June 30, 1998.


                                       18

<PAGE>



                                LORAL ORION, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
           MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS
                                   (CONTINUED)

LIQUIDITY AND CAPITAL RESOURCES

Existing Capital  Resources.  As of June 30, 1999, the Company had cash and cash
equivalents of $16.0 million and restricted assets of $49.4 million, placed in a
pledged  account  (to  pre-fund  the next two  interest  payments  on the Senior
Notes).

Based upon its current  expectations for growth, the Company anticipates it will
have  additional  funding  requirements  over the next  three  years to fund the
purchase of VSATs,  Senior Notes interest payments,  other capital  expenditures
and other  operating  needs.  Interest  charges  on the  Senior  Notes are fully
provided for by restricted  cash through January 2000. The Company does not have
a  revolving  credit  facility.  Accordingly,  the  Company  will need to secure
funding from Loral, or raise additional financing. Sources of additional capital
may include public or private debt, equity financings or strategic  investments.
To the extent that the Company seeks to raise  additional  debt  financing,  the
Indentures  limit  the  amount  of such  additional  debt  (under a  variety  of
provisions  contained  in such  Indentures)  and prohibit the Company from using
Orion 1 or Orion 2 or the  insurance  proceeds  from Orion 3 as  collateral  for
indebtedness for money borrowed.  If the Company requires  additional  financing
and is unable to obtain such financing from Loral or from outside sources in the
amounts and at the times needed, there would be a material adverse effect on the
Company.

OTHER MATTERS

IMPACT OF YEAR 2000

The Year 2000 Issue is the result of computer  programs which were written using
two digits rather than four to signify a year (i.e., the year 1999 is denoted as
"99" and not  "1999").  Computer  programs  written  using  only two  digits may
recognize the year 2000 as the year 1900.  This could result in a system failure
or miscalculations causing disruption of operations.

The Company has  implemented  a Year 2000 program (the "Year 2000  Program") for
its  internal  products,  systems and  equipment,  as well as for key vendor and
customer  supplied  products,  systems and  equipment.  As part of the Year 2000
Program,  the Company is assessing  the Year 2000  capabilities  of, among other
things, its satellite,  ground equipment,  research and development  activities,
and facility management systems. The Year 2000 Program consists of the following
phases:  Inventory of Year 2000 items,  Assessment  (including  prioritization),
Remediation  (including  modification,  upgrading and replacement),  Testing and
Auditing.  This five-step  program is divided into six major  sections  covering
both information and non-information technology systems: 1) business systems, 2)
technical systems, 3) products and services, 4) imbedded  hardware/firmware,  5)
vendor supplied products and 6) customer provided products. As of June 30, 1999,
the Company has completed  approximately  99 percent of the inventory  phase and
approximately  90  percent  of its  assessment  phase.  The  Company  expects to
complete  the first four  phases,  through the testing  phase,  of the Year 2000
Program  during  the third  quarter of 1999,  which is prior to any  anticipated
material  impact on the  operations of the Company.  The fifth phase,  the audit
phase,  commenced in January 1999,  and is expected  continue  through the third
quarter of 1999 to accommodate re-audits if necessary.

Both internal and external resources are being utilized to execute the Company's
plan.  The program to address Year 2000 has been underway  since July 1997.  The
incremental costs incurred through June 30, 1999, for this effort by the Company
was  approximately  $84,000.  Based on the efforts of the  Company to date,  the
Company anticipates  additional  incremental expenses of approximately  $182,000
will be incurred to substantially complete the effort.



                                       19

<PAGE>




                                LORAL ORION, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
           MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS
                                   (CONTINUED)


As an added  safeguard  against the  possibility  that a Year 2000 related issue
will adversely affect the Company's ability to continue operations,  contingency
plans are being  developed  under the  assumption  that worst case scenarios are
encountered  in critical  areas.  Emphasis is being placed upon the action to be
taken if  there  is  discontinuance  of  services  and/or  lack of  delivery  of
compliant products from third party suppliers, including utilities which provide
power,  water,  fuel and  telecommunications.  Baseline  contingency  plans  are
expected  to be  completed  prior to the end of the third  quarter of 1999.  The
Company believes that adequate time will be available to ensure alternatives can
be  developed,  assessed  and  implemented  prior to a Year 2000 issue  having a
material negative impact on the operations of the Company. However, there can be
no assurance that such plans, if required, will be completed on a timely basis.

The cost of the  program  and the dates on which the  Company  believes  it will
substantially  complete Year 2000  modifications  are based on management's best
estimates.  Such estimates  were derived using software  surveys and programs to
evaluate  calendar date  exposures and numerous  assumptions  of future  events,
including the continued availability of certain resources, third-party Year 2000
readiness and other factors.  Because none of these estimates can be guaranteed,
actual results could differ  materially  and adversely  from those  anticipated.
Specific  factors  that  might  cause an  adjustment  of costs  are:  number  of
personnel  trained in this area,  the ability to locate and correct all relevant
computer  codes,  the ability to  validate  supplier  certification  and similar
uncertainties.

The Company's  failure to remediate a material Year 2000 problem could result in
an interruption or failure of certain basic business operations.  These failures
could  materially  and  adversely  effect the Company's  results of  operations,
liquidity and financial  condition.  The Company is also assessing the Year 2000
readiness  of  key  third-party   suppliers.   Information  requests  have  been
distributed  to such suppliers and replies are being  evaluated.  If the risk is
deemed  material,  on-site  visits to suppliers  will be conducted to verify the
adequacy of the information received. However, due to the general uncertainty of
the  Year  2000  problem,  including  uncertainty  with  regard  to  third-party
suppliers and customers, the Company is unable to determine at this time whether
the  consequences of Year 2000 failures will have an adverse  material impact on
the  Company's  results of  operations,  liquidity or financial  condition.  The
Company's  Year 2000  Program  is  expected  to have  considerably  reduced  the
Company's  level of  exposure  in  regard  to  third-party  supplier  Year  2000
problems.  There can be no assurance  given that the Company's Year 2000 Program
will be  successful  in avoiding any  interruption  or failure of certain  basic
business  operations,  which may have a material adverse effect on the Company's
results of operations or financial position.

ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial  Accounting Standards Board issued Statement No. 133
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), which
requires  that all  derivative  instruments  be recorded on the balance sheet at
their fair value.  Changes in the fair value of  derivatives  are recorded  each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge  transaction and, if it is, the type
of hedge  transaction.  The Company has not yet  determined  the impact that the
adoption  of SFAS 133 will  have on its  earnings  or  financial  position.  The
Company is required to adopt SFAS 133 on January 1, 2001.


<PAGE>


                                LORAL ORION, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)


PART II. OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)  Exhibits:

              27   Financial Data Schedule

         (b)  Reports on Form 8-K:

              May 5, 1999 Item 5 - Other Events Orion 3 Launch Failure















                                       21

<PAGE>



                                LORAL ORION, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)


                                    SIGNATURE

         Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended,  the  registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.




                                            LORAL ORION, INC.
                                            -----------------
                                                Registrant


Date:  August 13, 1999                   /s/   RICHARD J. TOWNSEND
                               -------------------------------------------------
                                               Richard J. Townsend
                               Senior Vice President and Chief Financial Officer
                             (Principal  Financial   Officer  and   Registrant's
                                              Authorized Officer)








                                       22